Registered Investment Advisers Be Aware! SEC Proposes New Rule Amendments
Funds registered with the Securities and Exchange Commission (“SEC”) as Registered investment advisers (“RIAs”) should be alerted to the fact that the SEC has proposed new rule amendments under the Investment Advisers Act of 1940 that will require RIAs to implement written business continuity and transition plans.
RIAs should go over their current policies and procedures to determine if they address the key components highlighted by the SEC. The proposed rule is a reiteration of the SEC’s continuous efforts to make certain that RIA’s adopt and implement written business continuity and transition plans reasonably designed to address operational and other risks related to a significant disruption in the investment adviser’s operations. This includes but is not limited to natural disasters, cyber-attacks, technology failures, the departure of key personnel, etc. that could prevent the RIA from meeting its fiduciary duty to clients and/or cause investor harm.
The proposed rule will require the RIA’s plan to be constructed around the specific risks associated with their operations. The plan should address various aspects such as the following:
- Maintenance of critical operations and systems and the protection, backup and recovery of data.
- Pre-arranged alternate physical location of the RIA’s office and/or employees, communications with clients, employees, service providers, and regulators, identification and assessment of third-party services critical to the operation of the RIA and a plan of transition that accounts for the possible winding down of the RIA’s business.
- The transition of the RIA’s business to others in the event the RIA is unable to continue providing advisory services.
RIA’s will need to detail their plans to be specific to their organization based upon the complexity of their business operations and the risks related to their particular business activities. The RIA will need to review the adequacy of its business continuity and transition plan and the effectiveness of its implementation at least annually. The review generally should consider any changes to the RIA’s products, services, operations, critical third-party service providers, structure, business activities, client types, location and any regulatory changes that might suggest a need to revise the plan.
To read the proposed rule, please click on the link below:
https://www.sec.gov/rules/proposed/2016/ia-4439.pdf
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
